Chapter 16 - Solution Manual

Marketplace assumptions typically should be

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marketplace assumptions typically should be consistent with the acquiring entity's operating plans with respect to developing and producing minerals. It generally would be inappropriate for an entity to use a single factor, such as the current price or a historical average, as a surrogate for estimating future prices without considering other information that a market participant would consider. FASB ASC 16-7 Demutualization of Life Insurance Companies Search Demutualization 944-895-05 > The Demutualization Process 05-5Mutual insurance entities differ from stock insurance entities in that they do not have stockholders. A mutual insurance entity is considered to be owned by policyholders whose insurance contracts embody their rights as insureds and as members of the mutual insurance entity. 05-6The process of demutualization or formation of a mutual insurance holding entity is subject to scrutiny and approval by state insurance regulatory authorities. Most states have some form of demutualization statute. A range of demutualization statutes and regulations exist for insurance entities. Typically, those laws contemplate a direct and full reorganization of the mutual insurer to a stock form. In accordance with some demutualization statutes, eligible policyholders receive stock, policy credits, policyholder benefits, cash, or subscription rights as consideration for their membership interest. 05-7The process for allocating the aggregate consideration among eligible policyholders varies based on individual entity circumstances and applicable regulatory statutes. The allocation process generally consists of a fixed and a variable component. 05-8The fixed component represents consideration for eligible policyholders’ membership interest in the mutual insurer and consists of a given number of shares per policyholder (or sometimes, per policy). 05-9The variable component represents consideration for eligible policyholders’ contribution to the value of the insurer. The variable component of the aggregate compensation is allocated to policyholders in proportion to the actuarial contributions of their eligible policies, if positive. A policy’s actuarial contribution consists of its historical equity share (the policy’s past contribution to entity equity) and, in most cases, the prospective equity share; that is, the present value of the policy’s expected future contributions to entity equity. FASB ASC 16-8 Affiliated Sales in the Consolidation of Regulated Industries Consolidation and regulated operations and affiliated sales 980-810-45 Affiliated Sales 45-1 Profit on sales to regulated affiliates shall not be eliminated in general-purpose financial statements if both of the following criteria are met: a. The sales price is reasonable.
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